If you're struggling with credit card debt, the mountain can seem impossible to climb. With interest rates on credit cards north of 17% on average - according to the RBA - the interest bill can quickly get out of control. If your debts are stretched across multiple credit cards, too, the minimum repayments can also get expensive - and there are penalties if you don't make the minimum repayment. Luckily there are some things you can do both proactively and reactively to get on top of your debt.
1. Consider a balance transfer
It could be worth it to consolidate all your credit card debt into one card. Many banks offer a 0% balance transfer and introductory rates so you can transfer all your debt and only pay off the principal for the introductory period of time. Balance transfer periods are typically anywhere from 12 to 36 months.
Balance transfers typically come with a fee - a portion of your outstanding debt. This is usually much more affordable than snowballing minimum payments and interest. To take full advantage of a balance transfer, make sure to pay off your entire outstanding balance before that period is up as the interest rate then reverts to the standard rate.
2. Be mindful of interest-free days
Check for the due date of your credit card statement and make sure you pay on or before that date or else you may have to pay interest as well as a late payment fee. Direct debit or automatic payments are a great way to make sure you never forget. If you prefer to do it manually each month, put a reminder in your calendar to help you remember.
Interest-free periods are typically 55 days, however your card may have longer or shorter periods. Cards with longer interest-free periods typically come with higher interest rates. In addition, it's also important to note that this is a rolling period; a purchase made on day 54 usually means you have to pay it off in full by the next day to avoid accruing interest.
3. Pay as much as you can each month
Paying off more than the minimum debt amount each month will help you pay off your debt quicker. It will also mean you pay less in interest and therefore save money. Paying only the minimum repayment amount will add years to your repayment plan and will end up costing you a lot of money in interest charges. Further, not even making the minimum payment can incur penalties.
4. Reduce the number of credit cards you possess
Sometimes it's hard to get on top of debt when you have multiple credit cards. Multiple credit cards usually means multiple annual fees, late payment fees, over limit fees, more bills, and ultimately more interest payable.
Consider paying one off at a time. If you start with the smallest debt, it will help motivate you to keep going. If you have one card that has considerably higher interest than all the others, you may want to consider paying that one off first.
If your credit cards are getting out of control, you could consider debt consolidation or balance transfer cards. This will roll all your debt into one product with only one bill to stress over - and at a potentially lower rate too.
5. Reduce your credit limit
Once you have paid down your debt, you can contact your lender to ask them to reduce your limit. This will stop you from using the paid off amount and going back into unwanted debt. If you exceed your limit, there is usually an over-the-limit fee which can act as a stark reminder not to exceed it.
Reducing your credit limit can also look better on your credit file, and will likely increase your borrowing power when it comes time to get a home loan.